Over the past several years, southeastern states have adjusted their cost-of-service monopoly model for electric utilities to begin accommodating demand for renewable energy (mainly for large buyers). This is a good start, but not enough. The authors warn that if the southeastern region utilities continue with the status quo they will miss greater potential savings and reliability benefits that a larger, more flexible grid offers.

Increased demands for more renewable energy, coupled with high energy bills in the region and the recent cancellation of a $9 billion nuclear plant expansion project, has led lawmakers and stakeholders to consider changing the current utility regulatory model.

A group of utilities including Duke, Dominion Energy South Carolina, Southern Company, Associated Cooperative and the Tennessee Valley Authority, disclosed they have been discussing a Southeast Energy Exchange Market (SEEM). These utilities have emphasized they do not want governing authorities enforcing sales or requiring transmission capacity be reserved to ensure sales can be delivered. The SEEM, as proposed, could be a step up from how energy is currently traded in the Southeast, but the projected net savings appear to be small compared to the net benefits other utilities have seen through similar models.

“Regional electricity markets have reduced wholesale energy costs and displaced less efficient, more polluting resources with cheaper, cleaner technologies in the United States,” said Jennifer Chen, senior fellow of electricity policy with the R Street Institute. “They have also enhanced the flexibility of the power system to balance variable renewable generation and adapt to sudden disturbances.”

In their new policy study, Jennifer Chen and former Federal Energy Regulatory Commission (FERC) General Counsel Michael Bardee outline other potential market models which would better serve customers and generate cost savings. These include developing a Regional Transmission Organization (RTO), creating an energy imbalance market (EIM) or joining an EIM offered by a neighboring RTO.

RTOs are independent, largely nonprofit organizations responsible for grid reliability, planning and operations. Roughly two-thirds of the United States are served by RTOs, which operate the transmission system on behalf of their transmission-owning members. RTO markets are independently monitored for market power abuses and manipulation, and federally regulated RTOs are governed by boards that are independent of any market participants.

EIMs, on the other hand, leverage a neighboring RTO’s existing platform to allow limited, voluntary, real-time energy trades without requiring RTO membership. This model typically allows utilities to satisfy their own customers first, then transact any excess energy through the EIM, or meet demands at a lower cost. So far, utilities’ EIM experiences have produced benefits that exceed their estimated costs for joining, such as with the California Independent System Operator (CAISO) Western EIM.

Continuing with business as usual means the risk of generation overbuild is high and increasingly expensive. Participating utilities in other EIMs have done the analyses and determined that the benefits of oversight, independence and a governance framework coupled with that model ensure that the system works for everyone, inspires confidence in the platform and can help attract participants.

Read the new policy study, “How Voluntary Electricity Trading Can Help Efficiency in the Southeast.”